Oracle Corporation (ORCL)

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Oracle (ORCL)

Q1 2013 Earnings Call

September 20, 2012 5:00 pm ET

Executives

Ken Bond

Safra A. Catz - President, Chief Financial Officer and Director

Mark V. Hurd - President and Director

Lawrence J. Ellison - Chief Executive Officer, Co-Founder and Director

Analysts

Kash G. Rangan - BofA Merrill Lynch, Research Division

Jason Maynard - Wells Fargo Securities, LLC, Research Division

Philip Winslow - Crédit Suisse AG, Research Division

John S. DiFucci - JP Morgan Chase & Co, Research Division

Adam H. Holt - Morgan Stanley, Research Division

Brent Thill - UBS Investment Bank, Research Division

Brad Reback - Stifel, Nicolaus & Co., Inc., Research Division

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

Presentation

Operator

Good day, everyone, and welcome to today's Oracle Corporation Quarterly Conference Call. Today's conference is being recorded. At this time, I would like to introduce Ken Bond, Vice President of Investor Relations, Oracle. Please go ahead, sir.

Ken Bond

Thank you, Erin. Good afternoon, everyone, and welcome to Oracle's First Quarter Fiscal Year 2013 Earnings Conference Call. A copy of the press release and financial tables, which include a GAAP to non-GAAP reconciliation and other supplemental financial information, can be viewed and downloaded from our Investor Relations website.

On the call today are Chief Executive Officer, Larry Ellison; President and CFO, Safra Catz; and President, Mark Hurd. As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking. Throughout today's discussion, we will present some important factors relating to our business, which may potentially affect these forward-looking statements. These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements made today. As a result, we caution you against placing undue reliance on these forward-looking statements, and we encourage you to review our most recent reports, including our 10-Q and 10-K and any applicable amendments for a complete discussion of these factors and other risks that may affect our future results or the market price for stock.

And finally, we are not obligating ourselves to revise our results or publicly release any revisions of these forward-looking statements in light of new information or future events. Before taking questions, we'll begin with a few prepared remarks. And with that, I'd like to turn the call over to Safra.

Safra A. Catz

Thanks, Ken. I'm going to focus on our non-GAAP results for Q1. I'll then review guidance for Q2 and turn the call over to Mark and Larry for their comments.

Before I start, I want to point out a couple of things about the quarter's report. First of all, because the U.S. dollar strengthened over the last year, our as-reported results actually partially masked the underlying strength of our business.

During the first quarter, currency movement reduced new license revenues by 5%, total revenues by 5%, net income and earnings per share by 6%, which is $0.03 per share compared to Q1 of last year. So I'll focus on constant currency growth rates, unless I state otherwise.

Secondly, as we offer cloud services, which combine our applications and technology products in a service, the historical line between our technology and application results is less relevant. So we will now disclose a combined new software license and cloud software subscription revenue number, though we will break out the cloud revenue number for you. Expenses will not be broken out, because the same sales organization and the same development organization are the bulk of the expenses in both our on-premise software and cloud offering.

Okay. Now for the quarter. We are pleased with our software results as new software license and cloud subscription revenues were $1.6 billion, up 11% and building off a solid base of 11% up last year. Cloud revenue for the quarter was $222 million.

In addition, we continue to see broad-based strength as the quarter was balanced with new license and cloud subscriptions growing 14% in the Americas. That's on a GAAP basis -- actually, 16% on a non-GAAP basis -- 12% in APAC, while Europe saw growth of 1%, on top of 15% growth last year on a GAAP basis. The quarter was also not dependent on any large deals. Software license update and product support revenues were $4.1 billion, up 8% and up 1%, sequentially. In U.S. dollars on the income statement chart, it appears that support is down sequentially, but this is entirely a result of currency fluctuation as support attach and renewal rates continue at the usual high levels.

Hardware system products revenue was $779 million. Engineered systems continue to grow at triple digit rates.

For the company, total revenue for the quarter was $8.2 billion, up 3% from last year. Our non-GAAP operating income of $3.6 billion was 6% higher than last year as our operating margin expanded to 44% from 42% last year. We still believe there remains a lot of leverage in our business model.

The non-GAAP tax rate for the quarter was 23.4%, nearly on top of the guidance rate I gave last quarter. EPS for the quarter grew 11% in U.S. dollars to $0.53 on a non-GAAP basis. Without the negative impact of currency, our non-GAAP earnings per share would have been 3% higher at $0.56, up 17%.

Our GAAP tax rate was 24.7%, which was higher than my guidance for last quarter. On a GAAP basis, EPS for the quarter was $0.41 in U.S. dollars. And without the impact of currency, GAAP EPS would have been $0.44, up 24%. Now our GAAP earnings per share included $306 million minimum payment related to our lawsuit against SAP, which is their payment to us, which we exclude from our non-GAAP numbers.

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